Evaluating and Selecting a Strategic Partner

Picking a good alliance partner is a lot like finding the right tennis partner — find the right one you win; pick the wrong one you lose.

Strategic alliances can deliver significant benefits to startups including reducing your time to market, providing to strategic markets and increasing your company valuation to name a few.

But how do you determine who you should partner with? How do you evaluate potential candidates? I recommend an eight-step process for effective alliance partner recruitment.

Step One: Clearly Define and Validate Your Market

The first order of business of any startup.The goal of market validation is to identify your target market — the customers experiencing the most significant pain and who need your solution the most. Through this process you identify the gap between what constitutes a total solution and what minimal functionality you can realistically deliver. That gap represents your partnering roadmap — where you need to partner to deliver the total solution.

This is why market validation is the first order of business for any startup and the first order of business in any strategic alliance strategy. One of the biggest mistakes startups make is trying to build the perfect solution or killer app. You will never have enough capital or resources to ever be able to do this, so focusing on your core competencies is the best approach. Fill the gaps with partners.

Step Two: Develop Partner Selection Criteria

As with just about anything, if you don’t know what you’re looking for, how will you know when you’ve found it? Sit down with your management team and identify the most important criteria for selecting the right partner fit for your business. Areas to consider:

What is the potential for impact? The most important criterion is the potential of an alliance with this target to deliver strategic value to your company. What would be the impact to your competitive position, brand awareness, market acceleration? How quickly could you get traction with this partner in the marketplace?
Are the two companies compatible? This is where your friends and family network and reference calls with existing partners will prove helpful. Is this company’s culture and management team compatible with yours, and do you have compatible core competencies?
Are their goals and strategies consistent with yours? The stronger alignment there is between your company goals and the target company’s, the greater the likelihood of forging a successful alliance. Identify what the target companies goals and objectives are and determine if they are synergistic with yours.
Is this a good environment for partnering? It’s very helpful to know what kind of partnering culture the target organization has. Do they have a good reputation with their partners? Do they demonstrate a commitment to partnering? One of the most effective ways to ferret this out is to talk to one or more of the target company’s existing partners and ask them what their experiences have been.
What are the risks with this partnership? Risks of doing? Risks of not doing?
What access can they provide to other potential partners? Companies tend to settle into one or more partner networks. Consider the partners that your target company has. Would any of these companies be desirable targets? Are any of them already on your partner target list?

Step Three: Identify and Prioritize Partner Candidates

From the gaps you identified in your market validation work in Step One, start identifying companies who possess your missing capabilities. Read the trade rags, contact trade associations, search the web, and leverage your investor and advisor networks including your accounting and law firms. Who do the industry analysts say are the important companies in the space you’re targeting? Add these companies to your recruitment target list. Using the criteria you identified in Step Two, prioritize your target list to whittle it down to a manageable number of companies to target.

Step Four: Prepare “Partner Proposition Worksheet”

You only get one chance to make a first impression. Don’t blow it by indiscriminately calling your targets and “winging it.” Approach partner recruitment with the same care and preparation that you would if you were trying to land a marquee customer.

Prepare a “Partner Proposition Worksheet” [.doc] for each partner prospect. Start by thinking through “WIIFT” (what’s in it for them). Here you must stand in the target partner’s shoes. Why would they want to partner with you? Why do they need to partner with you? What capabilities do you have that they need in order to compete more effectively? Do your homework. Understand the company’s goals, objectives, and strategies and what’s happening to them in the market. Think through what your combined value proposition would be to customers. Identify a compelling vision for the partnership and articulate the impact of that vision on the marketplace.

Finally, clearly articulate your partnering proposition — what it is that you are proposing that you do together. Be as specific as possible. Perhaps you can even identify a few options.

Step Five: Conduct Recruitment Call(s)

Once you’ve done your homework, you are now ready for that initial call. Depending on the size of the firm your target will either be a VP of Business Development, VP of Marketing, or perhaps the company founder or president. Use your friends and family network to identify the right contact and perhaps get an introduction. Send them a copy of your completed partner proposition worksheet and step them through it. You will win points with them simply for being prepared and demonstrating knowledge of their business.

If all goes well, they’ll request a follow-up call or visit and the due diligence process will begin.

Step Six: Conduct Due Diligence

In this step both you and the partner prospect will be evaluating the “fit.” Is your product real and ready? What investments will be required to make the partnership work? You will need to layout the business case for the partnership.

Step Seven: Negotiate Partnership Agreement

Actually the negotiation process effectively starts when you make your initial call to the partner prospect. You should be continually establishing your value throughout the process. Prepare a business terms document first which lays out the general business terms. Get agreement from the business sponsors on the business terms before you engage the attorneys.

Step Eight: Develop an Alliance Plan.

Before you uncork the Champagne bottle, realize that after the alliance agreement has been signed your work has just begun. You now need to work with your new partner to develop an alliance plan that outlines partnership goals/objectives, action plans, rules of engagement, and checkpoints , and you will need to assign an alliance manager to manage the relationship and execute on the plan.